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MUMBAI: Renewed hopes of a rate cut after wholesale prices rose by their slowest rate in 43 months helped markets snap a three-day losing streak and close higher by almost 2 per cent on Friday.

The benchmark 30-share Sensex rallied 350 points, or 1.86 per cent, on Friday to close at 19177, while the Nifty gained 109 points, or 1.92 per cent, to close at 5808, its biggest percentage gain in a month as WPI inflation for May grew at its slowest pace since October 2009 at 4.7 per cent. After Friday's performance, analysts said the Nifty could encounter strong resistance at 6030 while 5796, the index's 200-day moving average, would act as a strong support.

But, in a grim reminder that a weak rupee still hung like the sword of Damocles over markets, foreign portfolio investors sold shares for a fourth straight session. On a net basis they sold Rs 305.68 crore.

However, frontline stocks gained after domestic mutual funds and insurance companies purchased Rs 910 crore worth of shares, their largest quantum of purchase since April 9. Investor buying perked up metals major Hindalco by 7 per cent at Rs 103.7, while Tata Motors jumped 5 per cent after its foreign subsidiary reported strong sales in May. Reliance Industries edged above 3 per cent, after partner Niko Resources provided clarity on the companies' recent gas and condensate discovery at key KG-D6 block in India.

Despite Friday's rally, though, a few analysts sounded a note of caution as factors like a high CAD and weak rupee could act as spoilers for a rate cut at the RBI policy meet this Monday. "RBI will not be swayed into cutting rates that easily as a weak rupee could potentially worsen the inflation numbers," said Sonam Udasi, head, research, IDBI Caps. "The way markets have fallen recently, a 100-point relief rally is not entirely surprising. Personally, I think, markets will continue to remain under pressure."

Indian stock markets have fallen in line with emerging market peers since late last month after US Fed chairman Ben Bernanke said an improvement in the US jobs market could impel the central bank to scale back its $85-billion bond buying, which helped EMs like India become the third best performing stock market last year. Ever since his announcement on May 24, EMs have been floundering. The dollar strength has also eroded the currencies of EMs, with the rupee falling the most among the lot over the past few weeks.

On Friday, Asian stocks too rebounded from multi-month lows, on better-than-forecast US retail sales, and jobs data, which bolstered the outlook for the world's largest economy. Among Asian markets, Japan's Nikkei 225 soared 242 points, or 1.94 per cent, to end at 12687. "The rally in the markets was due to unwinding of short positions by traders, and global long-only funds buying into key stocks, as these funds continue to be bullish on India's structural growth story," Saurabh Mukherjea, CEO, Institutional Equities, Ambit Capital.

Among other counters, Apollo Hospitals jumped 7.1 per cent after the group said it will spend Rs 2,200 crore on expanding facilities, and will add 2,700 beds in the next three years. MMTC fell by the maximum permissible level of 10 per cent, with the stock extending Thursday's 10 per cent fall, as the government concluded divestment of 9.33 per cent at a huge discount to the stock's ruling market price.

However, the recent fall in markets has resulted in many stocks still trading at their 52-week lows. These include Bajaj Hindustan, Crompton Greaves, Mangalore Refinery, Hindustan Oil Exploration, Hotel Leela, Tata Chemicals and EIH .